Abstract
The literature on microcredit programs has largely focused on positive socioeconomic outcomes and low accessibility issues in farming areas and has provided less insight into the effects of easily acquired microcredit in pastoral areas. Using a case study approach, and econometric models, this paper addresses this gap by examining why and how easily acquired microcredit loans in Inner Mongolian pastoral areas increase the risk to the financial security of households or livelihood risk. Results show that existing microcredit programs increase livelihood risk because loan and repayment requirements do not align with the husbandry production cycle of contemporary Inner Mongolian pastoralists. This misalignment forces pastoralists to borrow from usurers to repay bank loans. Furthermore, households that need to borrow from usurers typically own smaller numbers of livestock and are less likely to be able to repay the usurers by selling animals. Instead, they tend to increase their bank loans in the coming year to repay the previous year’s debt, trapping them in a vicious and ultimately impoverishing circle of annual loans they cannot fully pay back, and feeding increasing debt. We suggest that microcredit programs in semiarid areas should be in sync with the local production cycle and recognize environmental constraints that cause high variation in production seasonally and year to year. Our results supplement previous findings on microcredit applications and are particularly pertinent for other semiarid areas of the world.
Similar content being viewed by others
References
Andersson, C., E. Holmgren, J. MacGregor, and J. Stage. 2008. Giving credit to the microlenders: Formal microlending, credit constraints and adverse selection—a case study of shrimp farmers in Bangladesh. Environmental Economics Discussion Paper 08-02. London: IIED.
Andersson, C., E. Holmgren, J. MacGregor, and J. Stage. 2011a. Formal microlending and adverse (or non-existent) selection: A case study of shrimp farmers in Bangladesh. Applied Economics 43: 4203–4213.
Andersson, C., A. Mekonnen, and J. Stage. 2011b. Impacts of the Productive Safety Net Program in Ethiopia on livestock and tree holdings of rural households. Journal of Development Economics 94: 119–126.
Angrist, J.D., and A.B. Krueger. 2001. Instrumental variables and the search for identification: from supply and demand to natural experiments. Journal of Economic Perspectives 15: 69–85.
Angrist, J.D., G.W. Imbens, and A.B. Krueger. 1999. Jackknife instrumental variables estimation. Journal of Applied Economics 14: 57–67.
Awunyovitor, D. 2012. Determinants of loan repayment default among farmers in Ghana. Journal of Development and Agricultural Economics 4: 339–345.
Banerjee, A., D. Karlan, and J. Zinman. 2015. Six randomized evaluations of microcredit: Introduction and further steps. American Economic Journal Applied Economics 7: 1–21.
Basu, P., and P. Srivastava. 2005. Exploring possibilities: microfinance and rural credit access for the poor in India. Economic and Political Weekly 17: 1747–1756.
Berchoux, T., G.R. Watmough, F. Amoako Johnson, C.W. Hutton, and P.M. Atkinson. 2020. Collective influence of household and community capitals on agricultural employment as a measure of rural poverty in the Mahanadi Delta, India. Ambio 49: 281–298. https://doi.org/10.1007/s13280-019-01150-9.
Briske, D.D., M. Zhao, G. Han, C. Xiu, D.R. Kemp, W. Willms, K. Havstad, L. Kang, et al. 2015. Strategies to alleviate poverty and grassland degradation in Inner Mongolia: Intensification vs production efficiency of livestock systems. Journal of Environmental Management 152: 177–182.
Davidson, J. 2000. Econometric theory. Oxford: Wiley-Blackwell.
D’Espallier, B., I. Guérin, and R. Mersland. 2011. Women and repayment in microfinance: A global analysis. World Development 39: 758–772.
Gisselquist, R.M., S. Leiderer, and M. Niño-Zarazúa. 2016. Ethnic heterogeneity and public goods provision in Zambia: Evidence of a subnational “diversity dividend”. World Development 78: 308–323.
Godquin, M. 2004. Microfinance repayment performance in Bangladesh: How to improve the allocation of loans by MFIs. World Development 32: 1909–1926.
Gómara, I., G. Bellocchi, R. Martin, B. Rodríguez-Fonseca, and M. Ruiz-Ramos. 2020. Influence of climate variability on the potential forage production of a mown permanent grassland in the French Massif Central. Agricultural and Forest Meteorology 280:
Grameen Bank. 2016. Annual Report. Retrieved 25 February, 2019, from http://www.grameen.com/annual-report-1983-2016/.
Hesse, C., and J. MacGregor. 2006. Pastoralism: ‘drylands’ invisible asset? Issue Paper No. 142. Drylands Programme. London: International Institute for Environment and Development.
Hesse, C., and J. MacGregor. 2009. Arid waste? Reassessing the value of dryland pastoralism. London: International Institute for Environment and Development.
Hexigten Banner Government. Brief introduction of Hexigten Banner. Retrieved 2 June, 2019, from http://www.kskt.gov.cn.
Hussain, A., and G.B. Thapa. 2012. Smallholders’ access to agricultural credit in Pakistan. Food Security 4: 73–85.
Jia, X., H. Luan, J. Huang, and Z. Li. 2015. A comparative analysis of the use of microfinance and formal and informal credit by farmers in less developed areas of rural China. Development Policy Review 33: 245–263.
Judge, G.G., W.E. Griffiths, R.C. Hill, H. Lütkepohl, and T. Lee. 1985. The theory and practice of econometrics, 2nd ed. New York: Wiley.
Karlan, D., and N. Goldberg. 2007. Impact evaluation for microfinance-review of methodological issues, No. 42381. Washington, DC: The World Bank.
Lacalle-Calderon, M., M. Perez-Trujillo, and I. Neira. 2018. Does microfinance reduce poverty among the poorest? A macro quantile regression approach. Developing Economies 56: 51–65.
Li, W., and L. Huntsinger. 2011. China’s grassland contract policy and its impacts on herder ability to benefit in inner Mongolia: Tragic feedbacks. Ecology & Society 16: 1.
Li, Y., and W. Li. 2021. Do fodder import and credit loans lead to climate resiliency in the pastoral social-ecological system of Inner Mongolia? Ecology and Society. https://doi.org/10.5751/es-12245-260127.
Li, X., C. Gan, and B. Hu. 2011. Accessibility to microcredit by Chinese rural households. Journal of Asian Economics 22: 235–246.
Lumna, N., and A. Naleefa. 2014. The social impacts of informal loan system: A sociological study based on Nintavur divisional secretariat area. South Eastern University Arts Research Session.
Mckenzie, D. 2012. World Bank. Retrieved 16 January, 2021, from https://blogs.worldbank.org/impactevaluations/the-mongolian-microfinance-experiment.
Murphy, A.H. 1970. Predicted forage yield based on fall precipitation in California annual grasslands. Rangeland Ecology & Management/Journal of Range Management Archives 23: 363–365.
Murphy, D.J. 2018. We’re living from loan-to-loan: Pastoral vulnerability and the cashmere-debt cycle in Mongolia. Individual and Social Adaptations to Human Vulnerability 38: 7–30.
National Forestry and Grass Administration. 2018. Grassland protection in China. Beijing: National Forestry and Grass Administration (in Chinese).
Oba, G., N.C. Stenseth, and W. Lusigi. 2000. New perspectives on sustainable grazing management in arid zones of sub-Saharan Africa. BioScience 50: 35–51.
Ojiako, I.A., and B.C. Ogbukwa. 2012. Economic analysis of loan repayment capacity of smallholder cooperative farmers in Yewa North Local Government Area of Ogun State, Nigeria. African Journal of Agricultural Research 7: 2051–2062.
Pirgaip, B., and A. Hepsen. 2018. Loan-to-value policy: Evidence from turkish dual banking system. International Journal of Islamic and Middle Eastern Finance and Management 11: 631–649.
Pitt, M.M., and S.R. Khandker. 1998. The impact of group-based credit programs on poor households in Bangladesh: Does the gender of participants matter? The Journal of Political Economy 106: 958–996.
Pitt, M.M., S.R. Khandker, and J. Cartwright. 2006. Empowering women with micro finance: Evidence from Bangladesh. Economic Development and Cultural Change 54: 791–831.
Qi, M., and X. Yang. 2009. Loss given default of high loan-to-value residential mortgages. Journal of Banking & Finance 33: 788–799.
Scoones, I. 1994. Living with uncertainty: New directions in pastoral development in Africa. London: Intermediate Technology Pub.
Scoones, I. 1998. Sustainable rural livelihoods: A framework for analysis. IDS Working Paper 72: 1–22.
Siamwalla, A., C. Pinthong, N. Poapongsakorn, P. Satsanguan, P. Nettayarak, W. Mingmaneenakin, and Y. Tubpun. 1990. The Thai rural credit system: public subsidies, private information, and segmented markets. The World Bank Economic Review 4: 271–295.
Sneath, D. 2012. The ‘age of the market’ and the regime of debt: The role of credit in the transformation of pastoral Mongolia. Social Anthropology 20: 458–473.
Teklewold, H., M. Kassie, B. Shiferaw, and G. Köhlin. 2013. Cropping system diversification, conservation tillage and modern seed adoption in Ethiopia: Impacts on household income, agrochemical use and demand for labor. Ecological Economics 93: 85–93.
Turvey, C.G., R. Kong, and X. Huo. 2010. Borrowing amongst friends: The economics of informal credit in rural China. China Agricultural Economic Review 2: 133–147.
Wight, J.R., C.L. Hanson, and D. Whitmer. 1984. Using weather records with a forge production model to forecast range forage production. Rangeland Ecology & Management/Journal of Range Management Archives 37: 1–6.
Woodworth, M.D., and M. Ulfstjerne. 2016. Taking part: The social experience of informal finance in Ordos, Inner Mongolia. The Journal of Asian Studies 75: 649–672.
World Bank. 2012. Mongolia financial sector assessment: Access to finance. Washington, DC: World Bank.
World Bank. 2019. International development association project appraisal document on a proposed credit in the amount of SDR 21.80 million to Mongolia for a livestock commercialization project. Agriculture and food global practice East Asia and Pacific Region, Report PAD3517, Washington, DC.
World Bank Group, and People’s Bank of China. 2018. Toward Universal Financial Inclusion in China: Models, Challenges, and Global Lessons. Washington, DC: World Bank Group, and People’s Bank of China.
Zhang, J., L. Huntsinger, Y. Li, and W. Li. 2018. Is microcredit a form of risk for pastoral households of inner Mongolia’s semiarid rangelands? Rangeland Ecology and Management 71: 382–388.
Acknowledgements
Thanks to the National Natural Science Foundation of China (Grant Number 41671522); all the colleagues and students in the range lab of Peking University and University of California-Berkeley; Da Li for helpful comments on finance; participants of Sustainability and Development Conference 2018 at the University of Michigan; research assistants in field work, including Zhaonan Zhang, Xiangyu Jia, Yanbo Li, Chengcheng Zhang, Jian Zhang, Cheng Zhang, and Tao Wang; and the staff of local banks and local government, the local guides, and pastoralists during our fieldwork.
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Electronic supplementary material
Below is the link to the electronic supplementary material.
Rights and permissions
About this article
Cite this article
Lu, Y., Huntsinger, L. & Li, W. Microcredit programs may increase risk to pastoralist livelihoods in Inner Mongolia. Ambio 51, 1063–1077 (2022). https://doi.org/10.1007/s13280-021-01586-y
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s13280-021-01586-y